Investor-state dispute settlement (ISDS) threatens a just transition from fossil fuels and the urgent need for a social and ecological transformation for people and the planet. We welcome the recognition and inclusion of this risk within the thematic pillars of the First Conference on Transitioning Away From Fossil Fuels.
We call on governments to begin building a coalition of countries committed to freeing themselves from ISDS.
ISDS mechanisms are written into many trade and investment agreements. They entitle transnational corporations to sue governments in secretive tribunals outside of the national legal system over law and policy changes that they fear could reduce their profits. ISDS grants privileges to foreign investors that are unavailable to local businesses or ordinary citizens – especially the peoples and communities most affected by their investments.
The impacts of ISDS are felt in all areas of society and economy, from health care and public services to national security and chemical safety regulation. It is a profoundly anti-democratic system that undermines rights and constrains sovereignty and self-determination.
For many years, extractive firms in the oil, gas, and mining industries and energy corporations have brought hundreds of ISDS cases against countries, and this is increasing. Fossil fuel and mining companies have used ISDS to rake in more than $87bn in public money since 1998.1
On top of this, in recent years we have seen a growing number of cases that directly challenge the transition away from fossil fuels. Corporations are suing over matters including coal phase out, refusal to license new coal mines or extend existing ones, windfall taxes on excess energy profits, a ban on offshore oil drilling, fracking regulation and closure of a gas field.
Communities at the frontlines of the climate crisis are often at the heart of ISDS claims through struggles against destructive mining and other extractive projects, including from rising demand for minerals.
Key risks from ISDS for a fossil fuel phase out and truly just transition are a prohibitive increase in the cost from payouts to polluters and a chilling effect on necessary law and policy changes. Corporations can claim vast amounts of taxpayer money through ISDS, often far higher than in domestic courts. Recent claims have been in the billions, which surpasses the ability of many countries to pay and undermines the capacity to support a just transition. As a result, the fear of being sued may cause countries to delay or decide against taking needed action on fossil fuels and other extractive industries. Countries have already admitted that this is happening.
UN bodies have raised fundamental concerns over ISDS, including the 2022 IPCC report and reports by Special Rapporteurs. The International Court of Justice has emphasised that investment treaties must not be interpreted in isolation, but in harmony with international climate law and that countries have obligations under multiple sources of international law to prevent, mitigate and remedy climate change and its resultant harms. The Baku to Belém Roadmap of the COP29 and 30 presidencies identifies ISDS as a systemic barrier.
We call on governments to begin building a coalition of governments committed to freeing themselves from all forms of ISDS. This alliance would explore:
- Cancelling treaties with ISDS, or renegotiating to remove ISDS, between the governments involved, in ways that address ‘sunset clauses’
- Collective engagement with other countries to support further potential for stepping away from ISDS
- Committing to not signing any new ISDS agreements
- Including provisions on cancelling ISDS in a future Fossil Fuel Treaty
- Initiating negotiations for a multilateral treaty to bring about a world free from ISDS